THE CREDIT CARD MODEL
The CREDIT CARD is now a days an essential payment method for all of us, wherever we go, whatever we buy, its the credit card that we use to make the payment. It is something that has changed our behavior as a "CUSTOMER" of making the payment and spending money on the things (most of what we actually don't need).
WHAT THIS MODEL IS ALL ABOUT ??
This model is all about the LUST, LUST & LUST which is a kind of hidden desire in every human being who was otherwise constrained to use the money (cash) that he has but with the credit card he can now spend more & more frequent on everything which was otherwise not under his budget.
LETS UNDERSTAND THIS CREDIT CARD LUST MODEL IN DETAIL:
First lets get to know the two cases which affect the customer behavior drastically:
1. In the normal case, if you have $100 without any credit then you are bound to spend only that $100 in whatever way or manner you can. You simply cannot spend $101 because nobody is going to give you that extra $1 for no reason. This creates an impact on the Economy where the CUSTOMER's demand is determined how much he earns and how much his pocket allows him to spend. The companies therefore have to manufacture or deliver services accordingly and this growth rate is very low.
2. In the credit case, if you have only $100 in cash and $100 in credit which was given by the credit card company then as a CUSTOMER now you will SPEND or will have tendency to SPEND all of that $100 CREDIT saving your CASH. This now put a CUSTOMER in a position where he has spent the money on UNDESIRED things (most of the time) and his CAPABILITY TO SPEND is now more than 2x-4x which creates an impact on the economy as now the frequency and the money to be spend through CREDIT is more which is why Companies can offer more services or products and can LURE a customer in many forms through advertisements, mode of fear, more of necessity etc. This will make the CUSTOMER spend on the things which otherwise he WILL NEVER or WILL NOT spend if he has CASH ONLY.
THE CREDIT CARD MONEY $$ MAKING MODEL:
1. It is proven and very effective theory that everyone wants to buy a ROLLS ROYACE provided that person is offered an Easy Monthly Installment of $100 for upto 100-500 years.
2. The credit card is offered to LURE or to increase the LUST factor of a CUSTOMER who is looking for a payment method that gives him flexibility, usablility & an ability to spend more than that he has.
3. Credit card companies offer a PARTIAL PAYMENT on the credit card that will ensure that the CUSTOMER will pay a monthly interest. This is a proven case, for an example: if someone has used this credit card and the monthly exp were $500 then the PARTIAL PAYMENT offered by the credit company will be just $50 and customer would love to pay $50 rather than all of $500. This happens in more than 98% cases across the globe. The rest of $450 will incur an INTEREST of UPTO 40-50%.
4. This is very commonly seen that a customer who have offered a credit facility of $1000 has actually paid $5000 in INTEREST to the credit card company and is yet liable to pay that principle amount of $1000. This is because CUSTOMER is ready to pay $50 a month rather than $500 a month and the small interest actually piled up in due time and that customer is a victim of this MODEL "knowingly".
1. LUST factor is the primary driving factor in this model
2. CUSTOMER is willing to spend more if an external source of money or flexible payment modes are offered to him
3. CUSTOMER is willing to have a payment facility if that makes his desires come true and makes his life easy in some manner.
4. The model works everywhere however economies may actually define that this model will work in what manner and in what way.
5. If your business model is similar to the CREDIT CARD Model of if you are building a business where CUSTOMER LUST factor plays an important role then you must first need to understand your customer behavior, the economy, the ease of use & access etc.
THE CREDIT MODEL & THE GLOBAL RECESSION OF YEAR 2008
The American Economy:
The recession of year 2008 had great impact on the american economy because the loans & credits were offered by the institutions were far more than that could be recovered. The people were relying heavily on CREDITS. The credit institutions failed to recover the money that was in the market and led to a massive system failure.
The Indian & the Asian Economy:
The recession of year 2008 could not make effective impact on Indian & Asian Economy because the PEOPLE (CUSTOMERS) had different behavior to spend the money than that of the Americans or Europians. In the asia & south asia people tend to spend the money that they have with them (CASH) and do not much rely on the credits. Thus the money that was in the market was not much and the total money that could not be recovered in these economies was as small amount because of which these economies were safe. However in last 1 decade the customer behavior and impact on economies have changed drastically.
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